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It doesn’t happen very often, but once in a while a legal department takes out its pen and scribbles a few Dear John letters to its outside counsel. Last year, Albertson’s Inc. printed them out like form letters. After appointing a new general counsel and revising its acquisition strategy, the Boise, Idaho-based food and drug retail chain operator slashed its roster of “primary” law firms and made some significant additions. None of the outside counsel that appeared on the company’s list of primary litigation firms for 2003 — Akin Gump Strauss Hauer & Feld; Christie, Parker & Hale; McDermott Will & Emery; Saul Ewing; Steptoe & Johnson — are on this year’s list. Jones Day is the company’s sole primary litigation firm. Albertson’s also pared down its corporate transactions counsel: Akin Gump; Bogin, Munns & Munns; Hawley Troxell Ennis & Hawley; Meuleman & Miller; and Snell & Wilmer were casualties. Only Jones Day stayed on as primary transactions counsel. (However, Akin Gump and Saul Ewing moved to Albertson’s new regional counsel list.) The company also shuffled its labor and employment and intellectual property rosters. Akin Gump, Baker & Hostetler, and Fisher & Phillips were added to Albertson’s labor and employment lineup. Last year, the company didn’t list any primary firms in this practice area. In IP, Donahue Gallagher Woods and Perkins Coie were scratched from the list. Only Christie Parker stayed on. But the most striking change is the official ending of Albertson’s 15-year relationship with Skadden, Arps, Slate, Meagher & Flom for corporate transactions matters. (Last year the firm did a limited amount of work for the company, but didn’t make the primary outside counsel cut.) Instead, in 2004 Albertson’s crowned Jones Day as its new primary counsel for corporate transactions (and litigation). “This is going to soundbig-headed,” says Jones Day’s Lyle Ganske, a partner in the firm’s Clevelandoffice. “But it’s because we are that good; history and [quantitative]analysis would prove we don’t lose very many clients.” Albertson’s has other outside counsel changes in the works. The supermarket chain has begun an ambitious regional counsel program — to oversee a range of litigation matters — that includes about two dozen firms. Albertson’s remains tight-lipped about the details of the program: “It’s hard to comment about this before it’s all done,” says Paul Rowan, Albertson’s group vice president of business law. Some firms that have done work for the company in the past, like Philadelphia-based Saul Ewing and Baton Rouge, La.-based Kean Miller Hawthorne D’Armond McCowan & Jarman, say they’re in. But fellow Boiseans at Hawley Troxell, who did work for Albertson’s in the past, aren’t part of the program, says partner Craig Meadows. (Albertson’s wouldn’t confirm which firms made the cut.) The outside counsel changes reflect the company’s recent ups and downs. In the 1990s, Albertson’s gobbled up regional grocery chains throughout the country, including, in 1999, the $8 billion 1999 acquisition of American Stores Co. As a result, the chain operated more than 1,500 stores throughout the United States, among them Lucky Stores, Acme Markets and Sav-on Drugs outlets. The deal made Albertson’s the second-largest grocery retail chain in the country. But Jason Whitmer, a retail analyst at the Cleveland-based equity research firm FTN Midwest Research Securities Corp., says that Albertson’s eventually came down with a case of “integration indigestion.” As the stock market crashed in 2000 and rival Wal-Mart Stores Inc. launched a price war, Albertson’s found its 2,300 stores and $5 billion worth of debt too much to stomach. Its share price tanked, from the mid-$60 range in 1999 to around $20 in 2001. “The company needed to turn around its inefficient management processes and get rid of deadweight,” says Whitmer. In 2001, under pressure from investors, Albertson’s hired a new CEO, Lawrence Johnston. Previously chief executive of GE Appliances, Johnston reportedly wanted his own team of senior managers, so executives from the old administration were offered early retirement packages. Thomas Saldin, Albertson’s general counsel, who was only 55 years old at the time, was one of those who left the company. (This past July, Saldin came out of retirement to become GC at Boise-based energy utility IDACORP Inc.) He was replaced by John Sims, who had spent 22 years at Cincinnati-based Federated Department Stores Inc., most recently as the company’s deputy GC. An M&A veteran, Sims helped Federated acquire Macy’s and Bloomingdale’s. Johnston announced an aggressive plan to divest stores in areas where the company didn’t lead the market and expand operations where it did, and Sims was asked to oversee those transactions. Much of the legal work that goes into the buying and selling of stores is now handled in-house, say lawyers who work closely with the company. (Sims declined to comment for this story.) When it came to outside legal advice for those transactions, Sims re-established an old alliance. “Sims had a very good relationship with Jones Day when he used them at Federated,” says Mark Betzen, a Jones Day partner in Dallas. “Jones Day took Federated through its bankruptcy process in 1992, and that intimately involved [Jones Day] lawyers from a lot of disciplines, including M&A, tax, litigation, and labor, in a lot of geographical areas. At the time, it was the largest U.S. bankruptcy ever, and Jones Day took them through the process in two years when conventional wisdom said it would take five.” Albertson’s confirmed Betzen’s account, but declined to elaborate on why they stopped using Skadden. Losing a client like Albertson’s that buys and sells stores like its customers buy and eat candy bars marks a notable loss for the megafirm. Skadden didn’t get to participate in the company’s $2.5 billion purchase of the Shaw’s Supermarkets chain earlier this year. The honor went to Jones Day. Theodore Kozloff, a partner at Skadden’s San Francisco office, blames the shuffle in top management for the switch. “Clients come and clients go, but I was sorry to lose a relationship with good friends I had represented for 15 years,” he says. Sims has instituted other changes. While Jones Day is overseeing the big matters, including representing Albertson’s in an antitrust suit launched by California’s attorney general, the regional counsel will handle the routine cases, such as small slip-and-fall lawsuits. Rowan says that in the past, the company paid several hundred firms to take those cases, and that managing the unwieldy network became a problem. The 44-lawyer department really needed “peace of mind,” says another Albertson’s in-house attorney. In late 2002 Charles “Chip” Cole, Albertson’s group vice president of litigation, looked for a simpler system in which in-house lawyers wouldn’t have to spend lots of time matching smaller commercial litigation matters (including product liability, consumer privacy and small tort claims) to outside counsel, train and teach these lawyers the fundamentals of their operations, and negotiate fees. By promising steady work in bulk, the legal department also hoped to get discounts. Cole invited several dozen firms from around the country to submit bids. “It was very planned and orchestrated, and lots of homework went into this,” says Rowan. By the end of 2002, Cole had sliced the regional list to just a couple dozen, and he and his search team hit the road to hear what the firms had to offer. W. Randolph Teslik, a Washington, D.C.� based Akin Gump partner, and the firm’s point person with Albertson’s, participated in the Southwest pitch. He says the RFP bidding process “is not a regular request that [current] clients make, but when it happens, we’re more than happy to serve.” Teslik says Akin Gump successfully pitched itself on its past experience and expertise handling Albertson’s matters. He says that they talked a lot about fees, too, although he declines to comment about whether Akin Gump cut its rates. Tulsa, Okla.-based Holden & McKenna competed against Akin Gump in the race to be Albertson’s Southwest regional counsel. “Believe me, we tried to talk [Albertson's] out of [making the change],” says partner Steven Holden. “We represented [Albertson's] in the past, but they wanted to go to a bigger law firm to handle their regional work.” Akin Gump is currently working on single-plaintiff discrimination cases, routine breach-of-contract cases and age discrimination cases. The firm is also defending Albertson’s in an employment discrimination class action and a consumer privacy suit. Rowan says the regional counsel project isn’t finished. Some practice areas that weren’t part of the original plan, like environmental work, may be included in the program. “It’s an ongoing effort, and there will be more of it in the future,” he says. In other words, look out for more Dear John letters from Albertson’s soon.

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